What next for the blockchain?

Every piece of technology – old or new, small or large, simple or complex – has ideas embedded in it. These ideas don’t simply help our tools and gadgets to function, they also – in part – determine the technologies that we develop next, and shape how they will be used. This is what Kevin Kelly, co-founder of Wired magazine, termed ‘the inevitable’. I often reflect on this concept; in fact, I consider it an essential ethical consideration for all of us who work with new technologies. As we build products and look for solutions, we must consider the inherent biases of the things that we are creating and imagine the downstream effects that could follow them into our businesses and homes.

One of the new technologies that I think is most worth examining is blockchain, which contains a number of important, and potentially revolutionary, ideas beneath its coding. Most significantly, it offers a new way for us to manage trust. Anyone who has ever ordered an item online – successfully or unsuccessfully – will have made a decision as they press ‘confirm’ about exactly how much they trust the organisation they’re dealing with to deliver on its promises. Trust takes a long time to build and a moment to vanish – it’s essential in business and in life. Blockchain technology offers a real breakthrough on this front, but it’s crucial to explore a bit of economic history to understand why.

Social Codes and Trust Building

At the turn of the 20th Century, J.P. Morgan was a huge presence in American public life – he was personally as much of an institution as the bank he created and the companies he shaped. So, when he was called to speak before Congress in the winter of 1912, it was a major event. He had been summoned as lawmakers sought to respond to an economy which was at once increasingly complex and increasingly controlled by large monopoly businesses. And his comments from that occasion still resonate today. Questioned by lawyer Samuel Untermyer about the primary consideration for financial transactions, Morgan observed that: ‘The first thing is character… [b]efore money or property or anything else. Money cannot buy it… because a man I do not trust could not get money from me on all the bonds in Christendom.’ His biblical allusions may have been melodramatic, but Morgan was echoing an idea that had been, and continues to be, central to human affairs since our earliest days of trade: the foundation of all economic activity is trust, and our ability to extend it.

The earliest human economic exchanges were simple one-to-one agreements – swaps, effectively, of goods and services between individuals or tightly-knit family or tribal groupings. But transactions quickly became more complex with the introduction of agriculture. Where previously trade was typically conducted between people who were well acquainted and socially connected, they increasingly took place between relative strangers, and at much greater distances. With less direct control, and less personal knowledge came greater uncertainty and risk. To help mitigate this risk, rulers and states created institutions and laws. An important early example of this was Hammurabi’s Code, which established a wide array of guiding terms for engaging in all social and economic activity in Babylonian society. In doing this, King Hammurabi initiated the first version of what I like to refer to as a shared network state.

This phrase refers to the goal of achieving shared reality between transacting parties. That is, in the most fundamental sense, participants to an activity are on the same page and reading from the same book. But this is not easy to do – because as quickly as new trust reinforcing measures like Hammurabi’s Code could be introduced, our economic ingenuity conjured further innovations, constantly extending the range and the forms of trade.

Today, having digitised many of our institutions, concerns over whether we can extend trust as we extend trade now manifest online. With one click, we can now order a sweatshirt whose component parts may have been sourced, manufactured, stored and sold under half a dozen different cultural conditions and economic jurisdictions. We may have greater convenience and choice in goods and services than our agrarian predecessors, but it remains as, if not more, difficult for us to attain the same level of trust that informed their economic behaviour.

Trade Beyond Trust: Our Future Economy

Up until now our answers to the greater uncertainty incurred from economic growth have been limited – first aid, rather than a thoroughgoing cure. But blockchain offers something different, a fundamental alternative. In fact, it returns us to a state closer to our earliest economic history, where our transactions take place more or less unmediated by institutions and are highly transparent. But at the same time, blockchain allows for global scale, and for a huge variety in the nature of economic activity.

But what exactly is a blockchain, you may ask?

A helpful analogy is the experience of using a vending machine. The terms of the transaction are straightforward: you drop in payment, make a selection, and in return receive your soda of choice. Vending machines encode a little contract ‘if I pay you, you will release a product.’ We are not relying on a bank or a salesperson to perform this transaction, rather it is being performed by code on the machine. The state of the vending machine changes over time based on each customer selection, and the machine will stop selling the soda in a given row, once it runs out.

We can think of a blockchain as a similar structure: a state machine that manages the inputs and outputs of transactions, and anyone who uses it is dealing with the same reality – the same vending machine. Expand this simple analogy to imagine a machine that isn’t run or owned by a company. Instead, we can each see exactly the code that the machine uses, and we are able to verify all the transactions ourselves. Rather than only delivering sodas for money, this expanded machine can execute any transaction written in code, helping to automate business logic.

This is the revolutionary foundation upon which we may finally bring about that shared network state. Until now, transactional information has been siloed by institutions with interests that often diverged from those of their consumers or users. But on a blockchain the whole point is to proceed from consensus amongst parties who have equal access to relevant information. Just like in early agrarian trade, you can see your transaction, and know that it is being executed according to what was agreed. And it’s important to note that this consensus is being derived automatically, not by manual human intervention. With this in mind, we can see how a blockchain is, effectively, a decentralised computer. And like with a computer, applications can be built on top of blockchain architecture. We can program many kinds of transactions, just like we can write many kinds of contracts (beyond the if-then of a vending machine agreement), knowing that they will happen as planned.

Trust is still paramount, but blockchain technology will help us to build a new economic system that makes establishing authenticity, transparency and shared perspective in complex transactions simple. This opens up many doors that trust alone did not. It may be the first time that we have a technology that is inherently biased both to reduce uncertainty in transactions, and to extend the scale and the types of trade that are possible. We can build this future economy so that supply chains are highly responsive to short term variables like weather, adjusting automatically. We can build it so that consumers are empowered to make purchases that accurately reflect their interests. We can build it so that automation tackles the mundane, freeing humans up to engage in tasks that require greater creativity and exploration. Together, these changes could inaugurate a whole new era defined by more equitable participation in economic, social, and political life. In this world, we could trade with a stranger as if they were our neighbour. Imagine the possibilities.